The Temptation of Carry
Turkish Lira, Mexican Peso, South African Rand and Russian Rubel have one thing in common: They pay much more yield than the major currency pairs.
Now, there is obviously a reason for that. these currencies have not exactly performed well over the recent history and the political situation in the respective countries is fragile. Nevertheless, carries add up and whilst there is a significant risk involved, there is also a big opportunity for long term investors. It is only a strategy for investors who can bear significant volatility, but if you start looking at the twelve months forward prices it certainly starts to look pretty attractive.
Investors can play this strategy with plain forwards or combined with short term option strategies, either or it could be a very interesting add on or diversification for the portfolio.